2

concepts of customer
satisfaction, value and
retention

Chapter Questions
What are customer value, satisfaction, and
loyalty, and how can companies deliver
them?
What is the lifetime value of customers?
How can companies both attract and retain
customers?
How can companies deliver total quality?
What is database marketing?

5-2

perceived value

customer perceived value is the difference

between the total customer benefit and
total customer cost

5-3

The Value Proposition

The whole group
of benefits the
company promises
to deliver

5-4

Measuring Satisfaction
Periodic surveys
Customer loss rate
Mystery shoppers
Monitor competitive performance

5-5

satisfaction

5-6

measurement techniques
power of customer satisfaction

5-7

Product and Service Quality

Quality is the totality of features and
characteristics of a product or
service that bear on its
ability to satisfy
stated or implied needs.

5-8

Quality
Conformance
Performance

5-9

Total Quality Management

TQM is an organization-wide
approach to continuously
improving the quality of
all the organizations processes,
products, and services.

5-10

Maximizing Customer Lifetime Value

Customer profitability
Customer equity
Lifetime value

5-11

Estimating Lifetime Value

Annual customer revenue: Rs.500
Average number of loyal years: 20
Company profit margin: 10
Customer lifetime value: Rs.1000

5-12

Drivers of Customer Equity

Value equity
Brand equity
Relationship equity

5-13

Framework for CRM

Identify prospects and customers
Differentiate customers by needs and
value to company
Interact to improve knowledge
Customize for each customer

5-14

CRM Strategies
Reduce rate of defection
Increase longevity
Enhance share-of-wallet
Terminate low-profit customers
Focus more effort on high-value
customers

5-15

Table 5.1
Mass vs. One-to-One Marketing
Mass
Average customer
Customer anonymity
Standard product
Mass production
Mass distribution
Mass advertising
One-way message
Economies of scale
Share of market
All Customers
Customer attraction

One-to-One
Individual customer
Customer profile
Customized market
offering
Customized production
Economies of scope
Share of customers
Profitable customers
Customer retention

5-16

Customer Retention

Acquisition of customers can cost 5 times more

than retaining current customers.
The average customer loses 10 percent of its
customers each year.
A 5 percent reduction to the customer defection
rate can increase profits by 25 percent to
85 percent.
The customer profit rate increases over the life
of a retained customer.
5-17

Describing Market Dynamics

Permanent capture markets
Simple retention markets
Customer migration markets

5-18

Building Loyalty
Basic
Reactive
Accountable
Proactive
Partnership

5-19

Reducing Customer Defection

Define and measure retention rate
Distinguish causes of customer attrition
Estimate profit loss associated with loss of
customers
Assess cost to reduce defection rate
Gather customer feedback

5-20

Forming Strong Customer Bonds

Add financial benefits
Add social benefits
Add structural ties

5-21

Database Key Concepts

Customer database
Database marketing
Mailing list

Business
database
Data warehouse
Data mining

5-22

Using the Database

To identify prospects
To target offers
To deepen loyalty
To reactivate customers
To avoid mistakes

5-23